LONDON (Reuters) - Britain’s banks are in the process of paying out 1.2 billion pounds ($2 billion) to compensate small businesses that were mis-sold complex interest rate hedging products, data from the UK financial watchdog showed on Friday.
The figure represents about a third of the 3.75 billion pounds set aside by Britain’s four biggest banks - Barclays BARC.L, HSBC HSBA.L, Lloyds Banking Group LLOY.L and Royal Bank of Scotland RBS.L - to deal with the issue.
The Financial Conduct Authority (FCA) in May ordered banks to review almost 30,000 cases for possible mis-selling after finding “serious failings” in the way the products - known as swaps - were sold.
The swaps were sold on the basis that they would help to protect smaller companies against the risk of rising interest rates. However, when rates fell customers had to pay large bills, typically running to tens of thousands of pounds.
Companies faced penalty charges if they wanted to get out of the deals, conditions that many businesses said they were not told about when purchasing the products.
About a third of customers in the review had their cases dismissed because they were deemed sophisticated enough to have understood the products. More than half of those left under review were then offered alternative hedging products rather than full cash compensation.
By the end of June 16,000 customers had been sent decisions about redress, the FCA said on Friday. Of those, 13,500 were offered compensation with a cash element. So far 8,000 customers have accepted offers of compensation.
The regulator said last month that the nine banks involved in the review had a met a 12-month deadline to look at all cases, though some banks still had to communicate all decisions to customers.
($1 = 0.5877 British Pounds)
Reporting by Clare Hutchison; Editing by David Goodman